IF YOU purchased a large home when
raising a family, would you want to
continue to pay for it once the kids had
grown and moved away? For many, it
may be worth downsizing to fit a new
set of needs and goals.

That is the analogy Monica Gallagher, a partner at October Three
Consulting, utilizes to describe the
work of administering a frozen defined
benefit (DB) plan. Just because a plan
is frozen does not mean the job of
managing it will go away altogether, so
a reassessment of needs and services
is always in order once the freezing has
been done.

According to Gallagher, along with
Stewart Lawrence, national retirement
practice leader from Segal Consulting,
sponsors still need help with administration of the plan; actuarial and
accounting tasks; and payment of
Pension Benefit Guaranty Corporation
(PBGC) premiums. Further services
needed might include supervising the
actuaries and accountants who evaluate liabilities, calculate contributions
and otherwise oversee the plan.

Lawrence notes that while the
audit process for a frozen plan may
grow slightly easier as the number of
participants declines, the costs will,
for the most part, remain the same.
“The fees from the actuarial calculation might go down, but the accountant and actuary will still charge their
basic fee,” he says. Plan sponsors may
need considerable help to maximize
cost efficiency in this environment.

According to Lawrence, definedbenefit plans can be in one of fourstages—ongoing, closed, frozen orterminated—and advisers can playa role at each. A terminated planrequires that an employer build aprocess for settling the plan obliga-tions; ongoing plans have participantswho are still accumulating benefitsas service continues; closed plans,also known as soft-frozen plans, blocknew participants from entering, yetallow existing employees to resumebenefit accrual; and frozen plansstrictly disallow all participants fromaccruing benefits.“For most, you start with anongoing plan, then the client maybecome a closed plan, a frozen plan,and, at some point, you’re going to bea terminated plan,” he explains.—Amanda Umpierrez